I should correct myself, the two year german bunds are negative in nominal yield at the moment. I didn't see the -.20% target they have. Still, my previous comments stand, I would bet the other way with cheap options.
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Trading negative interest rates
- Thread starter sprstpd
- Start date
TBT? Can go long a short product and its liquid. Even options not too much of a spread.Traded on exchange.Suppose you think negative interest rates are ludicrous that you want to profit from them. Suppose you aren't really concerned with timing and so you are going to "buy and hold" this trade. Suppose you are a retail trader and you don't necessarily have a huge amount of capital or you want to "invest" in this trade over time (i.e., dollar cost average). What is the best way to short negative yielding bonds or rates so that you get paid while you wait for the inevitable day of reckoning? And what is a good way of doing this if you want to add only limited amount of capital at a time?
TBT? Can go long a short product and its liquid. Even options not too much of a spread.Traded on exchange.
TBT charges a management fee, plus there is yield there and it's levered.
How would you trade the other way for example.... Being short bonds has a costAgain, they are NOT negative nominal yields. They are negative "real" yields. And yes, banks will charge them to collateralize the trade. And "if" we were to hit another recession which is actually "highly" likely in the next two years, these trades could blow up big time. I think the trade of the lifetime could be betting the other way.
This article was from early 2015, but it shows an example of someone getting paid to take out a loan:
http://www.nytimes.com/2015/02/28/b...ugh-the-looking-glass.html?smid=tw-share&_r=2
Is there a way I can trade an instrument somewhere in the world where if interest rates rise I get a windfall, but if they fall or stay the same, I get paid to wait (or at least I don't have to pay anything while I wait)?
http://www.nytimes.com/2015/02/28/b...ugh-the-looking-glass.html?smid=tw-share&_r=2
Is there a way I can trade an instrument somewhere in the world where if interest rates rise I get a windfall, but if they fall or stay the same, I get paid to wait (or at least I don't have to pay anything while I wait)?
This article was from early 2015, but it shows an example of someone getting paid to take out a loan:
http://www.nytimes.com/2015/02/28/b...ugh-the-looking-glass.html?smid=tw-share&_r=2
Is there a way I can trade an instrument somewhere in the world where if interest rates rise I get a windfall, but if they fall or stay the same, I get paid to wait (or at least I don't have to pay anything while I wait)?
I don't think you understand how complicated this is. You want to make it sound so straightforward and easy. It's like when the VIX was at 11 and people on here thought it was free money to just buy the VIX at 11 because it had almost no downside and huge upside. Of course what they were missing is the price of the forward curve. They couldn't buy VIX at 11, they were were paying 16 or 17.
Honestly you should not be trading things you don't understand.
How would you trade the other way for example.... Being short bonds has a cost
There are many ways to trade this, but they all have their pros and cons. One obvious one is shorting the forward curve. Another is swaps (which you can create synthetically btw in FX markets).
Honestly you should not be trading things you don't understand.
I'm obviously not trading anything at the moment. I am trying to understand if there is a way to take the other side of negative interest rates as a retail trader.
I'm obviously not trading anything at the moment. I am trying to understand if there is a way to take the other side of negative interest rates as a retail trader.
No. One is costs. The other is the trade is not what you think it is. It's more then just a "directional play" on rates. There are a lot of moving parts and it's too hard for you to isolate the parts you don't want and trade only the part you do want. There are ways to do this trade in the FX market but again, it's not straightforward. Same with selling the forward yield curve.
No.
I don't accept your answer. Any other suggestions?